January 9, 2012

Cleaners vs surgeons

New Zealand rugby players come in all ages, shapes and sizes, and both sexes. Players vary greatly as regards their skill levels, commitment and training schedules. Rewards for players are extraordinarily unequal, as most actually pay to play while a very few are paid hundreds of thousands of dollars.

Is this fair or unfair? Should the Labour Party, the Greens or the Occupy Auckland movement campaign for more-equal payment of rugby players? Should the “greedy” All Blacks be forced to hand over some of their colossal income to the more impoverished fellow players? Should the Government intervene to reduce this glaring disparity in rewards?

New Zealand is an unequal society, just like every human society, just like every family. An equal society is impossible, an unworkable nightmare involving zero incentives and gross unfairness. Why should a cleaner be paid the same as a surgeon? It’s a ridiculous idea.

So, I don’t think anyone, anywhere argues that surgeons should be paid as much as cleaners. The labour market for surgeons and cleaners seems to be working pretty well. If anything we’re not paying our surgeons enough, and they’re all moving overseas.

The argument about equality is mostly centred around company executives and the finance industry. And again, I don’t think many people dispute that if you’re the executive of a large, successful company that you shouldn’t be handsomely paid, in proportion to your value to the company.

The issue is that executive and finance sector pay continues to increase at rates that are completely disproportionate. CEOs get massive pay increases and huge bonuses irrespective of profits, performance – anything related to value or wealth creation. They don’t get huge pay increases because they’re adding value to their companies, they get them because something in the current corporate model is broken, and unable to prevent executives transferring wealth out of their companies and into their own bank accounts. I have yet to see anyone justify or explain the explosion in executive remuneration – I doubt anyone can, which is why we get people like Robinson making their absurd ‘cleaners vs surgeons’ arguments.

And where does that money come from? Profits are stagnant or down, so executives lay off their workers in order to fund their salary increases. That’s why the incomes of the majority of New Zealanders have remained stagnant in real terms over the last few decades – the benefits of our anaemic economic growth all aggregate to this tiny handful of people. We’re not ‘growing the pie’, we’re gradually transferring more and more slices to the people that already have the most.

The analogy isn’t exact, but it’s close enough to the situation trade unions found themselves in in the early 1970’s. They were able to use their monopoly on labour to extract income from employers that was disproportionate to their value. It sparked a public and political backlash and crippled the power of the unions, and – with luck – something similar will happen to our executive and financial class.

I have a sneaking suspicion that we will in the next few years have many businesses realizing that they can get people for their top positions a lot cheaper than they are now paying if they look past the people who are commanding the highest salaries.

I also suspect that they will so so expecting slightly below par results, but will be surprised as those people perform well.

Finally, I suspect that those on the right will put that down to the market, and those on the left, campaigns🙂

“…In my own workplace, the University of Auckland, the vice-chancellor’s current annual stipend is $640,000. A decade ago his predecessor’s salary was $360,000.

That is a more than 75% increase in 10 years, or about 40% once you adjust for inflation in the consumer price index over that period.

At the same time, we, the frontline teaching and research staff of the university, have received, approximately, a 10% increase in our rates of pay, adjusted for inflation.

So, is there any objective reason why Prof Stuart McCutcheon, the present vice-chancellor, should be paid 40% more than Dr John Hood earned for doing the same job in 2001, or indeed why Dr Hood should have received an even larger premium over the salary of his distinguished predecessor, Sir Colin Maiden?

Is there any objective reason why vice-chancellors’ pay should have increased in real terms four times more than pay on the shop floor?

The answer is: no; there is no objective economic reason to justify these income discrepancies. ..”

I’m glad NZ has Richie McCaw (as well as surgeons; let’s put CEOs aside), and would be even more glad if, after John Key gifts him 49% of Mighty River as a golden handshake, he paid capital gains tax. Failing that, and perhaps less efficiently, he could pay a 50% marginal tax rate. Doubt that would make a difference as to whether he buggered off to France (who have a pretty gnarly tax system themselves), but I’d be willing to take that risk.

I suppose the question is not simply one of equality, but of value. Who decides whether a CEO should be paid more than a nurse, or a surgeon more than a cleaner for that matter? On what basis do we decide how much a society values the contribution of a school caretaker in relation to a tax lawyer or a right-wing columnist for a Murdoch-owned paper? Well, if you’re James or Martin Robinson the answer is that society makes no such judgment: relative wage rates operate purely at the whim of the Market (Blessed Be The Name of the Market). If you accept this argument, then there’s absolutely no reason to object to bankers earning more in a month than a nurse does in seventeen years. But it seems to me that this kind of excess really casts into doubt the whole notion of ‘earning’ money altogether.

I’m not saying I wouldn’t like to see more absolute equality – there are good arguments for reducing income inequality across the board – but I will admit Mr Robinson’s shattering insight that some degree of inequality is not merely inevitable but ultimately desirable. The question then is: is there a rational basis for deciding why the surgeon should earn more than the cleaner?

Surgeons do have a pretty powerful union, and a great deal of control over labour supply. I have heard that opthamologists have had large increases in productivity in recent years due to technological advances, and the closed shop in NZ is just eating all the gains themselves.

I find the performance-enhancing theory of bonuses plausible – that CEs are given big bonuses to incentivise middle-management to work harder, and, in a recession, you want that incentive to be stronger, so you give big bonuses to the folks at the top.

In any case, I think it’s more helpful to talk about people with a large amount of inherited wealth, who’re typically the upper class, as opposed to the salary-dependent upper-middle class. This [http://www.nuff.ox.ac.uk/users/atkinson/AtkinsonLEIGH_NewZealand08.pdf] paper (which only has data to 2002) shows that incomes of the top 20%, as a share of total income, have been stable since 1980 (and so have grown at normal rates) whereas the incomes of the top 0.5% have double as a share of the total, and so have more than doubled over that time. Assuming the latter group is the inherited wealth class (to late at night to verify that), they’d be the ones worth going after.

Aren’t there a number of sports where pay for top players is capped in order to stop even more ludicrous salaries from undermining the transfer market (iirc soccer has ruled like this, and so does league)? In which case professional sports are actually a nice example of a situation in which remuneration is regulated in order to prevent market failure…

personally I like the idea that my surgeon is well paid and has good labour conditions as less chance they will make a mistake while operating on me. on another note, I always think that if we were able to re adjust salaried to reflect peoples value to society then lawyers, in particular, commercial lawyers, should probably get a cut. early childhood teachers and mental/disabled careers should go up.

“I always think that if we were able to re adjust salaried to reflect my opinions then lawyers, in particular, commercial lawyers, should probably get a cut. early childhood teachers and mental/disabled careers should go up.”

Nice post Danyl. That stupid NZ Herald op-ed sufficiently irritated my faja and I to take a break from our holiday beaching and fishing to write a letter to the ed. As yet unprinted.

Title: We need to talk about inequality as it’s something we can choose to manage

Martin Robinson (5 January) mischievously tries to link the salaries of All Blacks to the debate about the social consequences of increasing inequality.

He claims redistributing AB’s salaries to all other NZ rugby players would ruin the team – sure it could, but no mainstream commentator is suggesting that, nor are they suggesting a purely equal society, which is the ‘strawman’ Robinson is arguing against.

Since the 1980’s income inequality in NZ has risen to amongst the highest of developed countries.

We need to talk about the negative effects of this on social cohesion, highlighted by Garth George (29 December), such as increasing rates of imprisonment, mental illness, drug abuse, and teenage births, and what we are willing to do to maintain a healthy society.

Countries can organise themselves to manage income disparities. The ratio of CEO to blue-collar worker income is 11:1 in Japan compared to 480:1 in the USA, both are wealthy but are at opposite ends of the social cohesion scale.

If we don’t manage inequality, many of us may need, like Robinson’s brother, to live in gated communities as social ills sky rocket. Is this the type of country we want our grand-children to grow up in?

Of course a cleaner shouldn’t be paid as much as a surgeon, that’s not the point. The point is that cleaning is an honest profession and when positions such as this start to become no longer viable for people to have due to low wages (similar to a company that is no longer viable due to a reduction in incomes), it is the responsibility of the Government to do such things as raise the minimum wage (even to $14.00, that would be a good start), or put in place policies which make, groceries for example, cheaper (such as reducing GST).

“Having too little is often understood to mean that one cannot meet basic needs like food and housing. Such deprivation may not be as useful a yardstick for advanced economies because there are few truly impoverished people in the community, so income inequality is the measure.”
So we’ve (sort-of solved) poverty in an absolute sense? It looks suspiciously like do-good interferers now need a more scary metric in order to secure funding.

Daniel Lang, rather than increase the minimum wage (and thus make even more folk unemployed) we need more employment opportunities (mining perhaps🙂 ) that competes for unskilled and semi-skilled labour. That way, cleaning companies will have to offer more to secure cleaners. There are currently too many shitty little cleaning companies and too many unskilled workers, so that those who need cleaning services can screw the price down. If cleaners were more scarce, then the wages would go up.
And it’s not groceries that are the problem; it’s the high cost of housing in this relatively empty country. Gold-plated building codes and restrictions on land use (yep, both examples of “regulation” in this free-market unregulated economy of Danyl’s imagination) contribute to high housing costs. Perhaps one day we’ll have a chunk of society circumvent all the rules by becoming travellers and plod & local council will not enforce as this would be discriminatory.

it is true you cannot build a house out of unreinforced masonry in this country, which is the cheapest and preferred method of building in places like the U.K. However, one only has to observe the astronomical level of fatalities in earthquakes in countries like Iran to see the wisdom of our “gold plated” building standards.

P.S. Building greenfield housing on land 75km from downtown isn’t “cheap”. It just represents a massive subsidy from the pockets of taxpayers in the form of congestion on motorways, new feeder roads, infrastructure like schools and sewage and electricity to the pockets of developers. When you look at the total cost to the country (including the fact we have to import the cars and fossil fuels these totally automobile dependent suburbs need to get to and from work) the line by developers in favour of satellite greenfield development is revealed for what it is – self-serving lap-trap uncritically swallowed only by willing fools.

Also uh, massive property bubble driven by speculation is why our housing is unaffordable. Honest,y it’s not like there is a lack of evidence for this industry, we don’t have to go on gut feel. We know categorically it’s not the building codes.

“20.Yeah, bloody building codes. What’d they ever do for us?!”
Well, not a lot, since, first they allow leaky homes “But it complies!” and then, as an over reaction, all new homes (in my city anyways) have to have double-glazing and cavity walls, even though I built with good old-fashioned weather board. So the high replacement cost of houses pushes up the value of existing homes.

“21.“Gold-plated building codes?” I take it you have actually seen a New Zealand house?”
I’ve built one under current(ish) codes, does that count?

Sanc @ 22: so the houses in Chch with their unreinforced masonry and unreinforced chimneys breached the code and were built illegally? I think you’ll find that communities built with what was to hand, not what the codes mandated. We build with wood cos we got heaps (even thought, in a fire, it burns) wereas the brit built with bricks or stone cos (a) perhaps there wasn’t a lot of wood and (b) it rains a lot, wood was cold and burned easy and Batts hadn’t yet been invented in a form otherthan mud+horsehair/straw.

As someone who lives in Christchurch, Clunking Fist’s moan about the building code almost made me choke on my beer with laughter.

However his subsequent attempt to blame the code for leaky buildings is just weak. It was a relaxing of the building code that gave us leaky homes, and some of the worst-hit areas of Christchurch have been those whose development was pushed through by greedy property developers (Pacific Park). They knew the land was bad because they had to pressure the shit out of the Council in order to get the consent approved, but these upstanding blokes don’t live in the places they’re selling so why should they care?

I do feel for him though, having to build a new house using basic insulation techniques must’ve been really tough. Obviously a much better approach for society to take would be to allow the the aforementioned greedy property developers to knock together shoddy, poorly insulated housing and then flog it off for a small fortune to unfortunate people who made the mistake of not doing their research and can’t tell the difference between a well-built house and one that is a piece of crap. Then Clunking Fist’s inalienable right to waste time and effort building a crappy house would be upheld and all would be right with the world.

Actually Rob, you’ve highlighted one of the issues around land use: the involvement of councils and their dealings with property developers. Developers make most money out of re-zoning: taking land where the existing owners are prevented, by law, from building on (possibly because the land is shit, but more likely because the locals don’t want any immigration in to their area spoiling their lovely views, idilic lifestyle, etc) and somehow convincing the council to change land use. Brown envelopes, anyone? So take the power away from the council and give it to land owners and the courts. If some idiot wants to build a 70-storey aprtment builing in the middle of a bog, who’s to say he can’t if it’s his land?
If he can convince another idiot to stump up the money…

“However his subsequent attempt to blame the code for leaky buildings is just weak.”
Possibly the code was put together by idiots, perhaps greedy idiots. Perhaps the clients who wanted this style of house were greedy idiots who pressured builders, against their better judgment, to build with these exciting new materials and techniques. Perhaps some of the builders were greedy idiots for agreeing to build, knowing that the stuff was shit. Other idiot builders probably had no clue how shit the new way was. And to top it all off, the council come along and tick all the boxes, giving (perhaps unitentionally) a degree of assurance to unsuspecting buyers who, as dentists and school teachers, have no real idea how a house stays dry inside and so rely on the advice of these experts.
It’s been suggested that a solution to the issues around codes & council inspection exists: insurance companies offer an inspection service. I’m sure insurance companies would be interested in taking my money and (a) examine my plans & specs and pass comment, (b) inspect/examine construction to ensure the approved plans are adhered to and (c) provide an extended warrantee including follow-up inspections. In 20 years’ time, when I retire and downsize, I will provide prospective purchasers with copies of the supporting documentation, but they would (like most sensible buyers do these days) have their OWN experts inspect & appraisal. If I have lost the documentation in the meantime, it will impact on the price I m likely to get, just like evidence of servicing or lack thereof is a factor that can affects the resale value of a car.
At the mo, when you buy a house, you tend to inspect. The inspection report (if quality) will refer to the codes under which the building was built and/or altered, alerting you to things that are considered less acceptable these days, and you choose to buy or not, based on the overall price/features mix. Danyl obviously valued period features over double-glazing when choosing his house.
By beef around “gold plated” standards are this: I could afford(ish) to build to current standard. I WANTED double glazing and good insulation (although a double-cavity wall is carrying it a bit far!) and have chosen it in the past when it WASN’T mandated.
But the humble cleaner trying to get by on a cleaner’s wage could never afford it. He/she is likely to be a renter and could probably never afford to rent a house of similar spec. What do you do if you have less money (or maybe just different priorities)? Perhaps you’d skimp on double glaze and make your own amazing curtains, double-lined with blankets salvaged after the death of Aunt Daisy? Perhaps you’d build a communal house with 2 other families who are trying to set themselves up.
I guess setting a minimum price for new build (which is what a single-set of building standards does) is a bit like setting a minimum wage: it ticks all the boxes and makes some people feel better about things, but adds somewhat to unemployment. By making property artificially expensive, you add to the numbers of folk living in garages.

Actually raising the minimum wage to $14.00 per hour wouldn’t make many more people unemployed because National, in their first term, cut the top rate of company tax from 30% to 28%. This means that employers can afford to employ more people and they can do so even if the minimum wage goes up to $14.00, except they aren’t being held accountable by the government in terms of hiring as many people as they need and offering labourers standard working conditions. Holidays aren’t enforced. I worked for close to three years. Technically, I should have had eight weeks’ of paid holidays. I had three and a half weeks of paid holidays. The Managers all had their eight weeks over the same period, plus days off for training, plus early Fridays to go off fishing or hunting, plus extended lunch breaks, plus public holidays. If a business intends to keep going on public holidays (and some need to), a Manager or Supervisor should be present.

Groceries are unaffordable for those on low incomes and this means that there is a shortage of cleaners and handymen because they are going off to other work (mining, which is an insult because of rapid climate change). If the Government had raised the minimum wage in conjunction with lowering the top company tax rate, and reduced taxation payable for those on low incomes instead of cutting tax drastically for high-income earners, there would be more people willing to work as cleaners.

@Danyl: you’re spot on with the comparison between the Tony Marryatts of this world and the 1970s union movement both pushing their luck. I’ve previously written of such an analogy before, and now it’s more relevant than ever.

What would be the mirror flip of Maggie Thatcher busting the UK unions? A French Revolution 2.0? Anti-trust law? Or shareholders flexing their muscle on executive pay?

DL@30 “raising the minimum wage to $14.00 per hour wouldn’t make many more people unemployed because National, in their first term, cut the top rate of company tax from 30% to 28%.”
So if I own a sandwich bar that made no profit last year, how does that tax cut help me pay higher wages to the staff? Still, I’m glad that you recognise that SOME people would become unemployed.

Danyl “And where does [executive pay rises] come from? Profits are stagnant or down, so executives lay off their workers in order to fund their salary increases.”
Profit are “stagnant or down” in line with sales. If sales are down, there’s less work to do. If there’s less work to do… (having said that, I’m not quite sure how executive remuneration can go up, but I’m attempting to defend capitalism, not these fat fucks).